Analyst Andrés Veurink rates ServiceNow shares a sell. The recommendation comes after the release of results for the first quarter of 2026, which show revenue growth but with signs of deterioration in the quality of the numbers. The renewal rate fell to 97%. Gross margins fell from 78.9% to 75% in the annual comparison.
ServiceNow recorded total revenue of US$3.77 billion in the period, up 22% compared to the same quarter in 2025. Subscription revenues, which represent the majority, grew at the same pace. Mesmo thus, the greater focus on contracts with high recurring annual value with large customers did not prevent the loss of momentum in some operational metrics.
Renovação falling signals lower pricing power
ServiceNow’s renewal rate reached 97% in the quarter ending in March 2026. The number represents a decline from the 98% recorded a year earlier. Net retention in dollars also shows stagnation, which indicates difficulty in expanding the value of existing contracts.
The company focuses its efforts on clients with ACV above US$5 million. Eram 630 of these customers at the end of March 2026, compared to 516 in the previous year. The average annual contract value rose to $14.2 million in this group.
- Taxa renewal at 97% in Q1 2026
- 630 customers with ACV greater than US$5 million
- Valor average contract at $14.9 million last quarter
- Crescimento of total revenue of 22% in the period
Esses data shows that the company prioritizes larger contracts. However, the movement coincides with lower overall base retention.
Raw Margens comes under cloud and AI cost pressure
ServiceNow’s gross margins fell to 75% in the first quarter from 78.9% a year earlier. Management is already signaling additional compression throughout 2026. The main reason is the increase in costs with third-party cloud services and the amortization of intangible assets.
The company invests in AI tools like Now Assist. Esses resources increase operating expenses. Outras industry companies also report rising costs for running machine learning models.
ServiceNow expects subscription margins to remain under pressure in fiscal 2026. The guidance points to further reduction compared to 2025. Analistas note that the cost of products sold in subscriptions has grown faster than revenue for two years in a row.
Stock-based Remuneração and capital allocation at center of criticism
ServiceNow executed accelerated share repurchases worth $2 billion in the quarter. The operation allowed the removal of around 20.2 million papers. The volume was double the previous year’s total repurchase.
Mesmo therefore, share-based compensation (SBC) volume remains high. The company uses cash and operating flow to neutralize the dilution. Cash fell from US$3.726 billion at the end of 2025 to US$2.702 billion at the end of March.
Críticos point out that the strategy offers little real value to the shareholder. The company spends resources to compensate for the dilution without generating equivalent organic expansion in the customer base.
Aquisições boosts guidance but adds pressure on margins
ServiceNow raised its subscription revenue projection for 2026. The new guidance is between US$15.735 billion and US$15.775 billion. The adjustment mainly reflects the contribution from the acquisition of Armis.
The integration of the new company, however, contributes to the compression of operating margins and free cash flow. Guidance for operating margin in 2026 was reduced by 50 basis points. Free cash flow margin fell 100 basis points to 35%.
The market reacts in a mixed way to the numbers. Enquanto revenue growth above 20% pleases, warnings about quality and costs generate concern among more cautious investors.
Estratégia Focus on Large Customers and Challenges Ahead
ServiceNow maintains a model focused on large corporations. The product acts as a registration, approval and process automation platform. The company offers AI integration but maintains human control over critical transactions.
The number of customers with high contracts grew. The company believes that a more accessible version could open up space for small and medium-sized companies in the future. For now, the focus remains on high-value accounts.
ServiceNow’s shares have accumulated a significant drop in the last 12 months. The paper reacts to concerns about AI and operational performance. Analistas maintains a mostly positive outlook, but voices like Veurink highlight risks in execution and margin sustainability.